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Argentina Economy to Grow 3 Percent

The Argentinean economy is expected to grow 3% in 2017 and 3.5% in 2018, primarily driven by public and private investments and initiatives expected from the government after the legislative elections in October, said Moody’s Investors Service in a new report on the South America country.

“While Argentina’s economic growth has been volatile, it is also larger and wealthier than peers,” says Gabriel Torres, a Moody’s senior credit officer, RTTNews reported.

The credit risk rating agency noted that this increased growth would support a reduction in the fiscal deficit, which will exceed 6% of GDP this year. “The government’s debt-to-GDP ratio will rise to 53% this year and 56% next,” the report said.

Also, the risk of refinancing is reduced, as about half of the Argentinean government debt is with other public sector entities. “But the proportion of debt held by the private sector is rising, increasing the country’s fiscal vulnerability.”

Moody’s also highlighted high inflation and a large proportion of foreign currency debt as “credit weaknesses”, exposing the government’s balance sheet to exchange rate risk.

Meanwhile, after less than two years in office, President Mauricio Macri says Argentina’s economy has turned a corner with single digit inflation now within sight for the first time in more than a decade, Bloomberg reported.

The president’s decision to open up the country after years of isolation, slashing subsidies and import tariffs and freeing up the exchange rate, has produced a “cultural change that is deep and constant,” Macri said in an interview Thursday.

His government has bitten the bullet, backing the central bank in its fight against the highest inflation rate in Latin America after Venezuela. Policy makers have held the benchmark rate steady since April at 26.25% as they look to bring inflation to the target of 12 to 17% by year end. While it may not achieve that goal, inflation has fallen to less than half its peak of 47% in 2016.

“We have turned a corner,” Macri said on Bloomberg Television. “Without a fixed exchange rate, without any type of price controls, we have been reducing inflation. I am more confident than ever that in 2019 we will have single-digit inflation.”

Gross domestic product expanded 2.7% in the second quarter from a year earlier, driven by investment and consumption. It was the economy’s best performance since Macri took office in December 2015. Consumer confidence also has rebounded.